New Taxation Proposal

Hong Kong, 12 October 2017

Financial Services and the Treasury Bureau will soon implement the two specific tax measures put forward in the Election Manifesto presented by Carrie Lam, the Chief Executive in Hong Kong. On the two‑tier profits tax system, the profits tax rate for the first $2 million of profits of enterprises will be lowered to 8.25%, or half of the standard profits tax rate, instead of 10% as proposed in the Election Manifesto. Profits above that amount will continue to be subject to the standard tax rate of 16.5%. The tax rate for the first tier, which is even lower than that proposed in the Manifesto, will provide further tax relief to small and medium‑sized enterprises (SMEs). To ensure that the tax benefits will target SMEs, it will be introduced restrictions such that each group of enterprises may only nominate one enterprise to benefit from the lower tax rate. To encourage research and development (R&D) investment by enterprises, the ITB will consult the industries on additional tax deduction for R&D expenditure. It is proposed that the first $2 million eligible R&D expenditure will enjoy a 300% tax deduction with the remainder at 200%.